1. Tarheel Furniture Company is planning to establish a wholly owned subsidiary to manufacture upholstery fabrics. Tarheel expects to earn $1 million after taxes on the venture during the first year. The president of Tarheel wants to know what the subsidiarys balance sheet would look like. The president believes that it would be advisable to begin the new venture with ratios that are similar to the industry average. Tarheel plans to make all sales on credit. All calculations assume a 365-day year. Industry Averages Current ratio 2:1 Quick ratio 1:1 Net profit margin ratio 5% Average collection period 20 days Debt ratio 40% Total asset turnover ratio 2 times Current liabilities/stockholders equity 20%

REQUIRED:

Based upon the industry average financial ratios presented above, complete the projected balance sheet

for Tarheels upholstery subsidiary. In your computations, you should round all numbers to the nearest $1,000. Forecasted Upholstery Subsidiary Balance Sheet

Cash $

Total current liabilities

$ Accounts receivable

Long-term debt Inventory

Total debt $ Total current assets

$ Stockholders equity

Net fixed assets

Total liabilities and stockholders equity $

Total assets $